Ecuador Plans Exchange, New Bond

Mar 15, 2013

Ecuador plans to launch an exchange offer for holdout creditors, clearing the way for a new sovereign bond sale, deputy finance minister Fausto Herrera said.

Ecuador plans to launch an exchange offer by June for holdout
creditors from its $3.2 billion 2008 default, the
country’s deputy finance minister Fausto Herrera
has told LatinFinance. The exchange would clear the
way for a sovereign bond issue of between $400 million and
$500 million in the coming year, he added.

"We’re going to do a new offer in the first
semester of this year to resolve the holdouts," Herrera said,
adding the terms would be "a little more favorable" than its
previous exchange offer in 2009, when it repurchased about
$3.2 billion in defaulted bonds at 35 cents on the dollar.

"President [Rafael] Correa believes we have the financial
strength to go to the market with a new offer," he said. A
fresh exchange would "take out" the principal hurdle standing
in the way of returning to the international capital markets.
It would also dispel any fears that Ecuador could follow
Argentina in being taken to court by holdout creditors, he
said. Herrera said the holdouts represent a "fairly
marginal" sum. It is believed they may represent up to $300
million.

"We want to diversify our sources of capital," Herrera said,
adding that the sovereign would return to the international
bond market "this year or next" depending on the size of the
budget deficit.

The revelation ends months of speculation over the
sovereign’s intention to normalize international
financial relations, which broke down following
Ecuador’s default. Herrera said a new issue
would go ahead if the sovereign received terms similar to
what it pays on its loans from China, between 7.0% and
7.5%.

Ecuador’s 9.375% $650 million 2015 bond has been
trading in around the mid 7% range, according to traders.
Honduras on Tuesday completed its debut international bond
sale, paying 7.5% on a $500 million 2024 bond. That followed
Paraguay’s debut bond in January paying 4.625%
for a similar tenor, and Bolivia which paid 4.875% on a
10-year bond in October.

Investors have questioned the sovereign’s
ability to return to the market.

"Willingness to pay is the huge hurdle for them to overcome
in terms of their reputation," said Jeremy Brewin, portfolio
manager at Aviva Investors. But he added: "the market is very
forgiving."

An Ecuadorian delegation, led by finance minister Patricio
Rivera will meet ratings agencies in New York next week,
Herrera said. The sovereign is rated Caa3/B/B-.

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